Supervalu and Albertsons Proving a Good Fit
A year after acquiring Albertsons, Supervalu’s numbers are looking good and indications are that better times lay ahead. So, what is Supervalu’s secret?
According to a report by the Minneapolis Star Tribune, Supervalu has succeeded in merging Albertsons into its business by going in with a game plan for integrating new stores and making sure it bought stores that were at or near the top of the market.
Supervalu CEO Jeff Noddle told the paper, “We were very careful at the beginning to plan for all of the transitions that we had to do.”
Supervalu picked up strong stores in Chicago, Los Angeles, Las Vegas and New England and has looked to shed stores in markets such as Milwaukee where it didn’t have as strong a consumer franchise.
Mr. Noddle said Supervalu has not fully completed its transition from the merger. He pointed to roughly 400 people moving into positions at the company’s operations in Eden Prairie and other locations in the Twin Cities area.
Among the major changes that took place with the acquisition of Albertsons was that Supervalu became first-and-foremost a retail operation. Prior to the deal, the Star Tribune pointed out, Supervalu’s business was split roughly 50-50 between retail and wholesale. Today, 80 percent of the company is focused on retail with the balance in wholesaling.
One of the keys to Supervalu’s retailing success appears to be its commitment to building on the existing brand equity of businesses it acquires.
“We didn’t go out and try to convert all of these stores to one banner,” said Pete Van Helden, Supervalu’s executive vice president and president of retail west.
Today, the company operates stores under a number of banners and seeks to take the best ideas from each to create a stronger overall organization.
“There’s lots of idea sharing across the company,” Mr. Noddle said.
One of the things that Supervalu’s CEO insisted be shared was a common corporate culture and focus on achievement.
“He (Noddle) saw the need to put this whole culture thing on the front burner,” Mr. Van Helden said. “Not only did it set the tone, but it set processes in place.”
Discussion Questions: What is your assessment of the job Supervalu has done in integrating the businesses acquired by Albertsons? What work do you see as still needing to be done?
Maintaining the status quo during an acquisition of this size is the supreme goal during the early months and even years. Take a look around. See what needs to be done, rather than what you want to get done–like artificially combining support departments (needs still trump wants, right?)
Both the long and short-term objectives of Supervalu’s acquisition of several Albertsons stores may–and probably will–remain “portable” for some time. In other words, it’s all about how the added cashflow benefits the company. In retail, purchasing a competitor is a license to report cashflow in a variety of interesting and legal ways. Cash is king, and cashflow is the king’s daddy.
SuperValu is a great example of execution. Mr. Van Helden was smart enough to know that the corporate culture was the “secret.” By bringing Albertsons in and sharing the corporate culture with a focus on achievement, he immediately created a team attitude and took the acquired employees off defense mode and put them onto execution mode.
Mr. Van Helden obviously understands that corporate politics is responsible for the demise of many companies and can dramatically impact the success of common goals. Imagine! He understands it’s all about PEOPLE! There are several companies that could use this lesson, Sears/Kmart for one.
Historically, grocery wholesalers have been poor store operators. One key as to why Supervalu appears to be succeeding with the Albertsons merger is that the stores are being merchandised and operated by retailers, not distribution people. These people are focusing on the consumer, not inside operating costs. Supervalu has a strong supply chain network. Having the wholesale side do what it does best–deliver merchandise to stores and not get into running the stores–is the right way to do it.
Jeff Noddle’s approach in merging Supervalu with the Albertsons acquisition has been masterful. He has a strategy that put the ‘merger’ of the two chains and all of their banners on the path to success.
In addition to the points laid out in the article by Mr. Anderson, it should be noted that Jeff Noddle also took the time to consider the supply base and communicating and listening to them as well. Last July he brought all of his top management and the two chains top suppliers together in Phoenix for an introduction to the new Team, to present their short and long term strategies and then to meet, face to face, their top suppliers to listen to their suggestions and ideas concerning the path that Jeff’s team laid out.
Suppliers are the key to any successful business and keeping them informed, listening to them and acting on their suggestions when appropriate is a hallmark of a successful retailer.
In my estimation, this played no small role in the success that Supervalu is currently enjoying so early in their transition.
Supervalu has followed a commonsense approach to integrating the acquired Albertsons business into its infrastructure by retaining the best each company had to offer. For Supervalu, it was a top-notch supply chain management system and for Albertsons it was management and marketing expertise. The management at Supervalu has also struck a good balance between its goals to reduce debt with the need to invest in the real estate it acquired with its innovative store remodeling plan ‘Premium Fresh and Healthy’, launched in November 2006. What’s innovative is that instead of having a common one size fits all approach to all stores, this remodeling strategy is supposed to be modular allowing Supervalu to customize it to suit local needs. The majority of stores targeted in this remodeling plan are from those acquired through Albertsons. Supervalu is leveraging all of the assets, both hard and soft, that Albertsons has to offer including its strong brand name and its senior management expertise like Pete Van Helden, a former Albertsons executive and an industry veteran.
Supervalu has done a terrific job of turning around the Albertsons stores they acquired. Their strategy of keeping the local banners and strengthening them by integrating Supervalu’s culture and standards is paying off. History will show that Supervalu’s acquisition of Albertsons was very successful.
Since Supervalu bought only the best divisions, they didn’t have to do much to undo the damage inflicted by Albertsons senior management. Instead of rushing in like a bull in a china shop making lots of changes, Supervalu seems to have taken a slow steady hand and guiding the acquired stores. Honestly this seems to have turned out better than I expected. I’ve seen Supervalu struggle with retail outside of Minnesota, most recently with their Scotts stores in Indiana that they gave up to Kroger.
Jeff and his team are doing an exceptional job–where many others have failed. They are proving it is not about Six Sigma, but leadership, core vision, strategies and tactics well executed. Value is correlated to leadership. SVU is a team of leaders.
Unlike the Federated Department Stores/Macy’s debacle in Chicago, or Safeway’s chastising of Dominick’s, Supervalu has entered Chicago with little change in the day to day operations of Jewel Osco. Jewel Osco still feels the same and still conveys it’s Chicago feel that it always has. In fact, I believe more management is being moved back to Jewel’s offices in Melrose Park, which is a win win for Chicago shoppers, who will be able to continue relying on Jewel as a pleasant, happy store to shop at.
I must also note that Jewel Osco still has a strong presence in the South Suburbs and NW Indiana of Chicagoland. Despite the presence of Meijer, Strack and Van Til, Food 4 Less, and Ultra Foods, Jewel Osco (minus the Highland, IN store which just closed and never did very well since it opened in 1996) has done very well in this highly competitive area of Chicagoland. Minus the Matteson, IL Dominick’s, Safeway/Dominick’s has failed basically anywhere East of Cicero Avenue or South of I-80 in Chicagoland. This is a quarter of the Chicagoland market share that Dominick’s is avoiding and Supervalu/Jewel is eating up!
Boy–a lot of people commenting here seem to think this is going really well.
I’m afraid I can’t agree, at least not yet. True, the stock is up–the stock market has little or no relation to ability to manage a compelling retail store. Volume is up as are margins–because retail is inherently more profitable than wholesale.
But Supervalu took on a load of debt to get this improved volume, and there is not a lot of evidence that the retail properties are doing any better under Supervalu than they were before. Same store sales are not at all robust, the much ballyhooed remodeling program is only slightly innovative at best, the ability of the banners to make intelligent local decisions is no better than it was under leadership from Boise, and the work force in most markets is still inadequate to deliver a quality store experience.
At most, we can say “too soon to tell.” I have a world of respect for Mr. Noddle and his team, and I highly doubt they are surprised at all by the size of the challenge. They knew it would be three years at least before they get to declare even a moderate victory, and probably longer to build a really first class operation out the combined company.
They haven’t made a lot of mistakes–but they haven’t won any resounding victories either.
I’m in the “it looks good so far, but let’s wait and see” camp. I can’t speak to the other geographic areas singled out in the article but in the Chicago area Supervalu had operated the now closed Cub food store chain for a number of years and were therefore already familiar with the market, trends, demographics, and tastes of Chicagoans. In some cases Cub stores were only blocks away from Jewel. This must have been an enormous advantage when they took over Jewel–and an advantage Safeway did NOT have when they bought Dominick’s.
On the other hand, the prices at Cub were lower than at either the old Albertsons’ Jewel or the new Supervalu Jewel. And Jewel’s prices seem to have risen somewhat since Supervalu bought them. Traditional Jewel shoppers are pretty loyal, but will Cub shoppers gravitate to Jewel or will they find other lower cost alternatives? I am surprised Supervalu did not at least initially attempt to price-position Jewel a little closer to Cub in order to reinforce the long time customers and lure new ones.
I was in an ACME store over the weekend and noticed that shoppers were cherry-picking the ad specials and using the store as a convenience trip for the balance of the baskets. After reviewing some of the extremely high retails on some of the items that I frequently purchase, I reminded myself that ACME and Supervalu are prisoners of a high-low merchandising approach that is doomed to fail.
I, for one, remain unconvinced that Albertsons or Supervalu will thrive when faced with real competition. They have strength with some very good locations but a poor pricing image and undifferentiated positioning in the marketplace contribute more negatives than positives when I conduct my SWOT.
Investors appreciate skilled operators. Jeff Noddle at Supervalu ended the bad karma from the Albertsons internal civil war. A year ago, Supervalu stock was $30 and today it’s over $48. This is a company that isn’t known for any unique technology, marketing approach, logistics or products. By sticking to basic principles of management, using experienced people, and minimizing internal politics, a supermarket company increased its value over 60% in 1 year.